BREAKFAST DEALS: ANZ blockade

ANZ Bank's attempt to increase its Asian presence fails to go to plan, while CGA Mining goes Canadian.

ANZ Banking Group has apparently walked away from a potential bank purchase in Hong Kong due to a disagreement on price. Mike Smith’s focus has increasingly become one of organic growth when it comes to the super-regional strategy. Duel-listed CGA Mining threw its support behind a scrip offer from Canada’s B2Gold overnight. Meanwhile, CVC Asia Pacific’s Andrew MacKenzie is stepping aside as Nine Entertainment negotiations heat up, the property assets of David Jones could go a few different ways and Genting Singapore billionaire KT Lim isn’t budging at all with Echo Entertainment.

ANZ Banking Group

Mike Smith has apparently hit another hurdle in his quest to build ANZ Banking Group’s presence in Asia as part of his ‘regional super-bank’ strategy.

According to the South China Morning Post, ANZ ended discussions to purchase a family-owned bank in Hong Kong due to disagreements on price. The report was unsourced.

The news was put to ANZ by Fairfax newspapers but a spokesperson wasn’t offering anything on it. Instead, readers got the following response: "We are focused on organic growth in greater China. We have built a strong regional platform, we are very well capitalised, we retain a AA credit rating and we are in greater China for the long term.”

Smith has never promoted the idea that building the company’s presence in Asia was going to be a quick exercise, but a few problems have come up along the way.

The hope that ANZ might pick up the Asian networks of a few undercapitalised European banks has been undermined by the sluggishness with which European leaders have dealt with the region’s banking sector.

Additonally, the new Basel III rules has put ANZ in a position where it would be damaging to its return-on-equity numbers if it were to hang on to a number of minority stakes it has in Asia.

Indeed, that’s part of the reasoning why ANZ offloaded it its $224 million stake in payment processor Visa yesterday.

Going back to the statement from the ANZ spokesperson, it’s looking increasingly likely that ANZ will have to grow its business organically.

CGA Mining, B2Gold

Canada’s B2Gold confirmed overnight that it will purchase Australia’s CGA Mining with a scrip deal worth $C1.1 billion ($1.08 billion).

CGA, also listed on the Toronto Stock Exchange, went into a trading halt yesterday pending an announcement on a transaction that came from Canada early this morning (Australia time).

The statement said that CGA’s board has unanimously supported the proposal subject to the investigations of an independent expert and the absence of a better offer.

B2Gold is offering 0.74 shares for every CGA share out there, representing a 22 per cent premium to the 20-day volume-weighted average price.

The premium looks a little skinny, but what has to be remembered is the uncertainty in the minerals sector has dried up the deals market.

Nine Entertainment, CVC Asia Pacific, Goldman Sachs, Apollo Global Management, Oaktree Capital

CVC Asia Pacific managing director Adrian MacKenzie is reportedly stepping down from the private equity firm as it battles hedge fund lenders over the fate of Nine Entertainment.

According to The Australian Financial Review, investors have been told that MacKenzie actually offered to resign in February, but was asked to stay on until negotiations over the network’s $3.8 billion debt burden serious begun.

The report says he will step away from the private equity firm in December.

The news comes as the power balance appears to be swinging towards US hedge funds Apollo Global Management and Oaktree Capital. The hedge funds hold about $1 billion of Nine’s $2.8 billion in senior debt, while Goldman Sachs speaks for about $1 billion in mezzanine debt, which ranks lower.

The two sides have been battling over the value of Nine Entertainment. The more it’s worth, the more that will be left over for Goldman Sachs.

Crucially, media reports indicate that the hedge funds now have the support of about 75 per cent of Nine’s senior lenders in terms of value.

This decreases the chances of Goldman persuading the lenders to accept a higher valuation for the company and less control of the final structure.

It also means that if Goldman plays hardball with the hedge funds that it’s more likely that Nine Entertainment will be tipped into administration.

It’s been said that Nine boss David Gyngell is set to act as a mediator between the two sides, emphasising that consequences that could occur if Nine does go down the receivership road.

It’s a bizarre situation to watch when Nine is back in the ratings game with a few big program wins.

David Jones

Frank Lowy’s Westfield Group and Lend Lease stand out as the most likely local suitors for the property portfolio of David Jones, if it comes up for sale.

David Jones is not so subtly reminding a number of different groups about something the market has known for a while – it’s property assets are very valuable.

The department store reached out to US property consultant Wakefield and Cushman to come up with a fresh perspective on the assets DJs has on its books at $460 million.

The firm is run by former Centro chief Glenn Rufarno, which means the conclusion that the assets could be worth $612 million carries a lot of weight. Some believe that could fetch even more.

This is a reminder to the market that DJs shares are cheap when you consider that its market cap is $1.2 billion. The property makes up half that.

It’s a reminder to would be property buyers that it has some great assets that could be up for grabs.

And it’s a reminder to potential suitors, most likely private equity, that’s there’s a simple formula to extract value from DJs. Buy it out, sell the property, enhance the online formula and wait for consumer confidence to turn around before an IPO or trade sale.

It’s kind of like watching a shell game. The same formula could serve one of three or four different fates for David Jones and we just have to sit back and see which one it is.

Indeed, DJs is broadly applying those same basic principles.

As Business Spectator’s Cliona O’Dowd explains the company’s more ambitious online strategy shows some much needed confidence to investors that the department store can compete in the current environment and had a place in the increasingly online retail world.

The element that DJs is adding beyond the private equity play formula is greater investment in customer service, which really helped push the latest profits numbers down 40 per cent. They’re hiring people to help persuade non-spending consumers to open up.

DJs might take some heart from comments by Harvey Norman managing director Katie Page (Gerry Harvey’s wife) in today’s Fairfax newspapers.

Page expressed her sympathy for Australian fashion retailers that cop tariffs before GST kicks in, putting them at a disadvantage to international online competitors, only to face more flack when they put on staff to improve customer service.

"You've got people out there saying, 'They're behind the eight ball, they don't know what they're doing'” Page said, according to Fairfax.

"How would you like it if overseas competitors could ship into this country and have costs of up to 50 per cent less than yours, because the government hasn't dealt with this issue?”

Harvey Norman also has significant property assets and has been occasionally put up as a possible private equity target.

But Harvey’s 30 per cent stake in the company would prove a more than difficult obstacle to overcome.

Genting, Echo Entertainment

Fears within Echo Entertainment speculators that they might be losing one of the billionaires propping up the stock were short-lived.

Genting Singapore billionaire KT Lim at first glance looked like he was moving away from his near 10 per cent stake in Echo after exiting 4.8 per cent his shareholding.

However, the stock was picked up by another arm of the Genting empire. A statement from the company said the decision to share the stock around was made in order to "rationalise its investment portfolio”.

This leaves Lim and Crown billionaire James Packer locked together in a holding pattern until regulators make a decision on whether the pair can move past 10 per cent apiece.

A takeover battle is unlikely, with Packer already indicating that he’s only after about 25 per cent.

Wrapping up

While CGA might be celebrating, Australian miner Exco is also in a good mood after accepting a sweetened $95 million takeover offer from Washington H Soul Pattinson.

The copper-gold company said in a statement that the board would throw its weight behind the new offer, which is up to 26.5 cents a share from the original 19 cents proposal.

Still in mining, Fortescue Metals Group is still looking at a possible downgrade from Standard & Poor’s and Moody’s despite its $US4.5 billion refinancing deal.

Both ratings agencies have kept the iron ore miner in their respective watch lists and it looks like the company will either have to watch iron ore prices rebound significantly or sell assets to get off it.

The key concern for the ratings agencies is Fortescue’s debt level. Speaking of which, keep an eye on troubled tollroad operator BrisConnections.

The Australian Financial Review reports that the company has increased its advisory ranks in the lead up to an anticipated battle with its lenders.

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